fully understood. Because of our intensive evaluation and policy development activity, there has been, I admit, less attention to day-today management functions at the Department than we would like to have given, particularly in HPMC and HM. In a word, Mr. Chairman, there are still many more rough edges than I and my cohorts hope there will be when I leave this office, but I hope that you and the members of the committee will appreciate the magnitude of our undertaking. The last such attempt at comprehensive evaluation and policy development occurred in the 1967-68 period, and I hope you will agree with us that after 5 years of the programs resulting from that period it was time to assess where we were and where we ought to be going.

These new policies, and equally important the fact that the legislative proposals that resulted from them are not yet fully enacted by the Congress, are reflected in the budget. In some places the budget reflects numbers in programs which are a substantial departure from the past and in other places the numbers reflect a plea to hold the line a while longer until we find out, through the legislative process, what businesses we are going to be in.

I would like to review with you now the overall budget before you, as well as the highlights of each of the principal program areas of the Department, some as already authorized and some still in the authorization process.

BUDGET TOTALS—APPROPRIATIONS

The amended budget proposes appropriations totaling over $5.3 billion. This is an increase of over $200 million from the original request. Of this total, 45 percent-or $2.4 billion-is for housing payments under the assisted housing programs, and 47 percent-or $2.5 billion-is for community development grants. This latter figure is an increase of $200 million over the original budget amount. In addition to these totals, there is a request under "Funds appropriated to the President" for a $200 million appropriation-an increase of $100 million from the original request-to the President's Disaster Relief Fund.

There are just a few specific matters in the appropriations that I wish to point out to you at this time. First, we are not asking this committee for action in connection with the housing programs. No appropriations action is necessary to release the section 23 contract authority needed for the additional section 23 units I referred to earlier. Second, we are requesting that, even before the authorizing legislation for the Better Communities Act is passed, you appropriate the funds but with a clause making their use contingent on necessary authorizing legislation. I think we all can agree that these funds should flow out to the cities just as fast as possible; and this is one step which will substantially speed up the initial distributions and substantially reduce the demand for transitional funding.

In this connection, our best current judgment is that the effective date for flexible funding under the community development legislation now pending in the Congress will be January 1, 1975-6 months later than we had originally anticipated. This factor has made it necessary for us to revise our funding plans in the community development

area.

Accordingly, we have released from reserve the balance of the fiscal year 1974 appropriations for Urban Renewal and Model Cities. This,

together with additional funding for fiscal year 1975-which we put at up to $200 million for urban renewal and up to $125 million for Model Cities-will be necessary to carry cities to the new starting date of January 1, 1975.

AUTHORIZING LEGISLATION

Additional legislation will be necessary for the new community development program, to provide the public housing contract authorization needed for operating subsidies and modernization, and for the revised section 23 program; and the amount of authority for the 701 comprehensive planning program will be insufficient in fiscal year 1975. A complete listing of all expiring legislative authorizations and balances available for appropriation is included in the introduction to the justifications which have been furnished to you.

BUDGET TOTALS-OUTLAYS

Budget outlays for the Department in 1975, exclusive of outlays from the President's Disaster Relief Fund, are projected to rise to a net total of $5.8 billion. This increase from the original budget estimate of $5.6 billion is due to the additional Model Cities and Urban Renewal funding I referred to earlier.

Fiscal year 1975 outlays include an estimated $560 million under the Better Communities Act. This is purely an estimate and not a ceiling. Actual outlays in this program may be more or less than the estimate and will be governed by the rate at which cities use their funds.

BUDGET TOTALS-EMPLOYMENT

The original budget reflected a request for a total of 14,156 permanent full-time positions at the end of fiscal year 1975. The amended budget requests 15,656.

There are several special aspects of the employment figures which I must point out.

First, you may note that the figure shown in our justifications for fiscal year 1974 is 774 higher than that which was presented to you last year. It has been subsequently further revised to 15,075, 1,074 higher than so presented last year. After a reevaluation of our staffing needs, based upon current workload and the actual status of various pieces of legislation, the President has allowed successive increases in our ceiling. The first change and the reasons therefore were communicated to you last December. We have just recently been given another increase in the fiscal year 1974 level in order to preserve our onboard staff for the workload we know is coming in fiscal year 1975.

The new figure for fiscal year 1975, which approximately 660 positions above our present work force level, is the result of a reassessment of our requirements, particularly in view of the legislative action taken thus far by the Senate and by the House Housing Subcommittee. Our original budget staffing proposal was premised upon the enactment of the Better Communities Act in the form proposed by the administration, and upon a July 1, 1974, commencement date. Now that a more labor-intensive version-and a delay in commencement date with heavier transitional requirements-appears imminent, our staffing estimates for community planning and development are too low.

Our original budget staffing proposal also was premised on an estimate of workload in HPMC based upon the low application trends current at the time the budget was put together. But with the current trend in market interest rates, the prospect of increases in the FHA mortgage limits, anticipated heavier tandem plan activity, use of FHA insurance in the section 23 program, and Assistant Secretary Lubar's efforts to revitalize FHA, we could have unit application receipts of 861,000—over 200,000 more than budgeted.

It is important to note that our proposed staffing numbers are based upon current estimated workload levels. It is possible, however, that workload could exceed these estimates. To the extent that additional workload does materialize, however, and requires additional staff beyond that proposed in this budget amendment, the Department will be authorized to hire temporary employees to the extent necessary.

HOUSING PRODUCTION AND MORTGAGE CREDIT

I have already highlighted for you what the administration is asking of the Congress by way of new authority to help improve the supply of housing credit for homeowners. These recommendations are in line with our belief that there will continue to be a role in home mortgage credit for Federal mortgage insurance. I am firmly convinced that, for the foreseeable future, there will be a continuing need for federally insured credit to serve those seeking homes not reached by the conventional money market but are reasonable, worthy credit

risks.

MORTGAGE INSURANCE ACTIVITY

I expect that activity under the mortgage insurance programs will increase over the next fiscal year and be accelerated if the specific legislative proposals are enacted. The original budget projected activity in the mortgage insurance programs to increase by nearly 35 percent655.000 unit applications in 1975 compared to an estimated 486,000 or less in the current year. As indicated earlier, we now feel it could as high as 861,000.

IMPROVEMENT OF PROCESSING PROCEDURES

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One crucial element here is the elimination of backlogs and the improvement of our processing procedures for FHA insurance. Surely one of the most serious deterrents to mortgage insurance activity has been the complex application process in FHA. I have given Assistant Secretary Lubar broad authority to take whatever administrative actions are necessary to insure timely, quality service in the field.

He will be implementing organizational, procedural and staffing changes wherever necessary to make the Federal Housing Administration a more viable organization. He has already streamlined the initial processing stages in multifamily housing; he is now simplifying the commitment procedure for subdivisions which will enable a builder to get one master commitment covering all lots in a subdivision, all housing models, and all options that he is offering. He has already authorized the reorganization of field offices in the Kansas City region to assure maximum utilization of resources, better quality control and

better accountability for results in the FHA mortgage underwriting and public housing production operations. I expect to see more improvements in the months to come.

We also look to coinsurance as a way to streamline substantially our FHA procedures. A system of coinsurance with more of the processing handled by the lender, as is presently the case under the very successful FHA title I property improvement program, would have several major benefits. First, since the lender has a portion of the risk, he is likely to be far more careful in his underwriting of mortgages than he currently is on the FHA 100 percent insured loan. Second, I believe that the lender will be more interested in working toward forbearance on a loan, in appropriate cases. Third, by having the lender responsible for much of the processing, the time necessary for processing by FHA itself should be substantially reduced.

Experimental authority which we have requested in our legislation would also offer us the opportunity to test alternatives to the familiar level monthly payment plan for paying off a mortgage. These could include such innovations as a flexible payment mortgage with low initial payments, thus helping younger couples, and other concepts which might help us better to satisfy the American dream of homeownership in every practical way available to us.

SUBSIDIZED HOUSING ACTIVITY

In regard to subsidized housing, we will continue to satisfy our bona fide commitments under the old programs as stated in the President's housing message. Eighty-two thousand units were budgeted for this purpose. In addition we shall continue to serve the housing needs of low- and moderate income families through the recently implemented revised section 23 program. As I said earlier, we are budgeted for 118,000 of these units in 1974 with an additional 300,000 units in fiscal year 1975. At this time, we expect a substantial portion of the 118,000 units budgeted for 1974 to be carried into 1975.

However, we need to understand that these figures simply represent our best estimate at the time the budget was sent to Congress. There are uncertainties here as well.

For example, we will need the enactment of sufficient contract authority in order to approve the 418,000 section 23 units budgeted for 1974 and 1975. Further, because of the newness of the program, it is difficult to predict at this time the number and quality of the applications that will be received or the processing time required in 1974 or 1975. But one additional point I want to make is this: Even though I want to use to the fullest the authority we have requested, we are not going to push unit approvals at the expense of quality. I am insisting on quality processing throughout.

I think that the revised leasing program offers a great deal of promise. Under this new program, the property owner will be responsible for all the operations of his building, including the collection of tenants' rent and will assume responsibility for vacancies and collection losses. The tenant will have greater flexibility and responsibility in that he will enter into a lease directly with the owner and pay his portion of the rent directly to the landlord. The program accentuates the utilization of the existing housing stock with new development encour

aged only in those areas which require additions to the available inventory.

RESULTS UNDER REVISED TANDEM PLAN

Also along production lines, the revised tandem plan which I announced last January is beginning to show results. At that time I announced that the revised and extended tandem plan would be aimed at enabling more families to qualify for homeownership and stimulating homebuilding. The plan was expanded to assist in the construction of some 200,000 units during 1974 by providing below market interest rate FHA-insured or VA-guaranteed mortgages up to a possible total of $6.6 billion. To be eligible under the expanded program, mortgages have to be for new construction-or unsold new homes-and bear an interest rate of 734 percent. Through mid-May, mortgages for over 72,000 units had been committed; and I expect that the actions announced by the President on May 10 to stimulate housing will help even more. These included increasing tandem authority by an additional $3.3 billion.

Another GNMA activity-guarantees of mortgage-backed securities-is continuing to live up to the promise of getting mortgage funds from the money market. By the end of 1975, over $15.7 billion in guaranteed securities are expected to be outstanding, which represents a significant contribution to the liquidity of the mortgage market.

CHANGES TO MOBILE HOME INSURANCE PROGRAM

Mobile homes are also a subject of interest. We recently received legislative authority to establish an interest rate to meet the loan market for mobile home loans to be insured under title I of the National Housing Act. After evaluation of comments from representatives of the industry and other interested parties, we have set the maximum rate at 1114 percent, based on our objective of assuring that loans are made available at the lowest possible cost to the consumer with a reasonable rates of return for the investor. That rate compares to a private conventional rate of up to 15 percent or higher. We are also making significant programmatic modifications to insure that the program can accommodate the substantially increased volume we anticipate while providing protection to the consumer and to HUD. These modifications would provide for a lower downpayment, for tiedowns to stabilize homes in high winds, and for improved construction standards.

In conjunction with these actions we are also revising the GNMA program under which securities backed by a pool of title I mobile home. loans are issued to ensure that it operates effectively and that the proper incentives are available for sound underwriting. One of the prime changes we are introducing is utilization of coinsurance-risk sharing with the issuer-in the GNMA mobile home loan program.

RUNOUT COSTS OF HOUSING SUBSIDIES

We are furnishing to the committee again this year our estimate of the runout costs of the subsidized housing programs-the estimated costs of the Federal payments which can be expected under contracts we have entered. In the years to come, this will be a continuing claim. on the Federal Treasury and on the staff resources of the Department.